The LGPS moved from a final salary to a CARE scheme in 2014. Your employees with LGPS membership before 1 April 2014 retain a final salary link.
Final pay calculation
Employers need to calculate final pay under the 2008 Scheme definition for:
- Employees with LGPS membership before 1 April 2014.
- Employees subject to the underpin set out in the McCloud remedy.
When to provide final pay calculation:
- when active membership ends.
- annually on 31 March for active members Annual Benefit Statements.
- annually on 5 April for active members Annual Allowance calculations.
- for members subject to the underpin, at their 2008 Scheme normal pension age (NPA) if they remain active members of the Scheme beyond this age.
Understanding Final Pay
Final Pay or pensionable remuneration is a Full Time Equivalent figure based on 365 days (366 days in a leap year).
Final Pay will normally be the pensionable earnings in the last 12 months of membership ending with the day employment ends.
Calculation example
If employment ends 31/03/2023, the final pay is the pensionable earnings from 01/04/2022 to 31/03/2023.
- Salary £24,000 per year or £2000 per month
- 12 x £2,000 = £24,000 FTE
If there is no pay rise or increment, it is the same rate of pay for the year.
The best pay from the previous two years can be used if it’s higher than the final year.
For part-time members, use the whole-time equivalent pay.
Any period of sickness should be ignored. Final pay is based on the pay the member would have received if they had not been on sick leave.
Any period of unpaid leave should not be included in the calculation unless the member has paid additional pension contributions to buy it back. The start and end dates for the calculation remain the same and the resulting figure is divided by the total days that were paid and multiplied by 365.
Pensionable Pay
The 2008 Scheme definition of pensionable pay.
Includes:
- Salary, wages, fees and other payments made to them for their own use in respect of their employment and
- Any other payment of benefit specified in their contract of employment as being a pensionable emolument
Excludes:
- Any pay without income tax determined on it
- Non-contractual overtime
- Travel allowances & subsistence
- Payment for loss of holidays
- Payment in lieu of notice
- Payments to induce an employee not to terminate their employment
- The money value of providing (or in lieu of providing) a motor vehicle
- Equal pay compensation
Best of the last three years
If the pay in either of the two years before the final year is higher, use that figure.
Example: For someone leaving on 13/8/2024, compare the whole-time equivalent pay for the years ending 13/8/2024, 13/8/2023 and 13/8/2022.
Example: Full Time employee
- Employee leaves/retires/dies on 6 October 2024.
- The final year’s pay is the pensionable pay in the period 7 October 2023 to 6 October 2024.
- Annual Salary: £23,500 from 1 April 2023 and £24,000 from 1 April 2024.
Calculate final year’s pay
First period: 07/10/2023 – 31/03/2024 @ £23,500 per year (£1,958.33 per month)
= 5 months (£9,791.65) + 25/31days x £1,958.33 (£1,579.30) = £11,370.95
Second period: 01/04/2024 – 06/10/2024 @ £24,000 per year (£2,000 per month)
= 6 months (£12,000) + 6/31days x 2000 (£387.10) = £12,387.10
Final year’s pay calculation: £11,370.95 (first period) + £12,387.10 (second period)
= total £23,758.05 FTE
Example: Part Time Employee
Final pay is calculated as Full Time Equivalent.
Example: Part time hours: 18.5/week, actual pay £12,000/per year.
Calculation: £12,000 x (37/18.5) = £24,000 FTE
A part time employee ends employment on 30 September 2023. The contractual hours of employment and salary rates during the last year of service are:
| Period | Dates | Hours | PT Annual Salary | FT Annual Salary |
|---|---|---|---|---|
| A | 01/10/2022 – 31/01/2023 | 25/37 | £15,878.38 (£1,323.20 per month) | £23,500 |
| B | 01/02/2023 – 31/03/2023 | 30/37 | £19,054.05 (£1,587.84 per month) | £23,500 |
| C | 01/04/2023 – 30/09/2023 | 20/37 | £12,972.97 (£1,081.08 per month) | £24,000 |
Use PT earnings and uprate to FTE
Period A: 4 x £1,323.20 = £5,292.08 x 37/25 = £7,833.34
Period B: 2 x £1,587.84 = £3,175.68 x 37/30 = £3,916.67
Period C: 6 x £1,081.18 = £6,487.08 x 37/20 = £12,001.10
Final pay = £14,954.24 (actual part time) = £23,751.11 FTE
Example: Term Time employee
Factor in weeks worked per year.
Example: part-time hours: 18.5/week, factor 45 weeks/year, actual pay £10,356/per year
Employment ends 31/03/23
Calculation: £10,356 x (37/18.5) x (52.143/45) = £24,000 FTE
Pay protection
Where there is a gap in membership in the final year, pay is grossed up to a full year.
Where an absence was due to illness or injury, disregard any reduction or loss of pay. Final pay is calculated as if the reduction or loss had not occurred.
Where earnings or a part are derived from fees, the calculation is normally the annual average in the last three years.
Best of the last three years: the employer has discretion to use a different three-year period ending on a 31 March in the last 10 years.
Thirteen-year remuneration: members with pay cuts can choose the best average of any consecutive three years in the last thirteen years.